Grafts of Japanese Quail limb and bone rudiments onto the choriallantoic membranes (CAM) of chick embryos are being used to study the lineage of skeletal cells. Such tracing is possible because the morphology of the Quail interphase nucleus is distinctly different from that of the chick. Skeletal cell lineage has been evaluated in (1) bone rudiments transplanted before and after the establishment of the marrow cavity, (2) bone rudiments fractured several days after transplantation, and (3) pieces of perichondrium-free epiphyseal cartilage. These experiments have shown that while osteoblasts are derived from precursors located within the bone rudiment, osteoclasts have their origin from the blood vascular system (from monocytes?). Furthermore, electron microscopy of the perichondrium-free cartilage grafts indicates that chondrocytes may survive endochondral matrix removal and redifferentiate into osteoblasts. Finally, CAM grafts of highly osteoinductive materials indicate the CAM mesenchymal cells lack osteogenic potential.